Are real estate firms sensitive to climate change exposure?

Using a sample of real estate (RE) firm-year observations from 30 countries, we show that greater firm-level climate change exposure (FCCE) is associated with lower stock liquidity. Among the components of FCCE, opportunity-related exposure shows the strongest negative association with liquidity. By contrast, physical risk exposure is positively associated with liquidity after controlling for CountryYear and Sub-industry fixed effects. We further find that national climate governance moderates the relationship between FCCE and liquidity. More stringent environmental policies and long-term climate commitments, such as net-zero targets, mitigate the adverse effect of FCCE on liquidity whereas the evidence for building-sector regulations is weaker. At the firm level, environmental performance also weakens this relationship. In addition, the negative association between FCCE and liquidity is less pronounced in more carbon-intensive sectoral environments as measured by both GHG and CO emissions. This result is consistent with the view that climate risk is already more fully priced in high-emission settings which reduces the additional uncertainty associated with FCCE. Overall, our results show that FCCE, corporate environmental performance and national climate governance jointly shape the stock liquidity of RE firms.